At the end of June, Onyx Pharmaceuticals (NASDAQ: ONXX) announced that it had rejected an offer from Amgen (AMGN 0.22%) that valued the company at $120 per share, or about $8.8 billion. Management stated that the offer undervalued the company's potential, which sent shares even higher. Things have cooled down a bit after no immediate buyer emerged, although shares are still well ahead of where they began the year.
Amgen has since bumped its offer up to $130 per share, or $9.5 billion, but other big sharks such as AstraZeneca (AZN 0.19%) are circling. Why is Onyx suddenly on Big Pharma's radar? What's so great about the company that makes it worth almost $10 billion?
Kyprolis, and those other two
Most of the attention being paid to Onyx revolves around its multiple myeloma drug Kyprolis. The indication has had relatively few treatment options in years past, so the Food and Drug Administration granted approval with just mid-stage data. The proteasome inhibitor currently treats patients who have taken at least two prior therapies, but it could be expanded to treat patients after just one prior therapy pending data from an ongoing late-stage trial.
That could be huge, but what would a potential buyer be getting right now? Kyprolis netted sales of $125 million in the first half of 2013. That's a strong start for limited approval, but it's far from best-case scenario projections of $2.2 billion per year. While all eyes are on the multiple myeloma drug, any potential buyer would get a decent rising star in Nexavar as well. The drug, partnered with Bayer, treats liver and kidney cancer and generated revenue of $151 million in the first six months of the year. Onyx also captures a 20% royalty on Stivarga sales from Bayer, which amounted to $19 million so far this year -- pocket lint for Amgen or AstraZeneca.
The other side of the coin
What investors need to ask is, what's the motivating factor for Amgen or AstraZeneca? Well, Amgen is set to lose exclusivity on several multibillion-dollar drugs, including Aranesp, Epogen, and Neupogen in coming years. Those three alone brought in $5.25 billion for the biotech giant in 2012. I believe there's enough positive momentum in Amgen's pipeline and biosimilar program to make up for the loss, but it never hurts to be over-prepared! Buying Onyx could be just the thing Amgen needs.
Meanwhile, AstraZeneca has had a rough time dealing with the patent cliff. First-half revenue and EPS are down by double digits compared with the year-ago period thanks to expired patent protection for Seroquel, Atacand, and Crestor. The pipeline has some promise, but it's not exactly making anyone drool. Acquiring Onyx would inject some instant offense to AstraZeneca's business -- and it hasn't been shy about pulling the trigger. The company purchased Omthera and Pearl Therapeutics earlier this year for a combined $1.5 billion. It would have to pay up considerably more for Onyx, but it could be worth it down the road.
Potential buyers may be wary of Kyprolis' potential now that Celgene (CELG) has multiple drugs approved for the multiple myeloma market. In fact, Revlimid, Pomalyst, and Thalomid are approved to treat all stages of the disease, which makes Celgene a considerable force to be reckoned with in the indication. Pending approvals for Revlimid will only make Kyprolis' commercial life more difficult. The closer competitor is fellow proteasome inhibitor Velcade from Takeda and Johnson & Johnson, although it will face fierce generic competition in 2017 and beyond. It may be too early to call a bidding war, but you can bet Amgen and AstraZeneca are carefully modeling the other therapies on the market.
Foolish bottom line
Although Amgen increased its offer by $700 million, it has taken a step back until it's allowed to glimpse interim data from the phase 3 trial. Why? The company wants to gauge the success of Kyprolis, which could be worth it given analyst projections. Luckily, Onyx granted that wish this week to all potential suitors, according to Reuters. Is a move about to be made? All investors can do is wait and see.
